The Final Tangible Property Repair Regulations are in full effect, yet many taxpayers are not in compliance or are missing opportunities to take full advantage of these new rules. The Tangible Property Regulations allow several new elections that reduce tax and simplify compliance.
Knowing when an expenditure can be immediately deducted as a repair and maintenance expense versus capitalized and depreciated can greatly accelerate the timing of deductions.
Also several new planning opportunities under the recently enacted PATH Act allow for significant tax savings including:
Opportunities under the PATH Act: Bonus Deprecation and 179 Expensing
- Protecting Americans from Tax Hikes (PATH) Act of 2015 retroactively reinstates for 2015 tax extenders that expired at the end of 2014, many provisions permanently renewed.
- 50% Bonus Depreciation provisions would be extended through the end of 2017 and phases down to 40% in 2018 and 30% in 2019.
- Section 179s increased expensing amounts for small businesses have been made permanent at the $500,000 level (inflation indexed).
- Businesses exceeding a total of $2 million of purchases in qualifying equipment will have the Section 179 deduction phase-out dollar-for-dollar and completely eliminated above $2.5 million.
- Additionally, the Section 179 cap will be indexed to inflation in $10,000 increments in future years.
Opportunities under the PATH Act: Qualified Improvement Property
- Qualified Improvement Property (QIP) sets forth criteria making it available to a broader set of taxpayers than Qualified Leasehold Improvements (QLHI).
- QIP is defined as any improvement to an interior portion of a building that is nonresidential real property as long as that improvement is placed in service after the building was first placed in service.
- Like QLHI, items that do not qualify for QIP include expenditures for enlarging a building, any elevator or escalator, or the internal structural framework of the building.
- 39-year recovery period, bonus-eligible, no ‘3-year’ rule, no lease requirement.
- Effective for property placed in service after December 31, 2015.
Opportunities under the PATH Act: Other Tax Planning Strategies
- R&D Tax Credit made permanent & modified. Additionally, beginning in 2016, eligible small businesses ($50 million or less in gross receipts) may claim the credit against their alternative minimum tax (AMT) liability, and the credit can be utilized by eligible small businesses against their payroll tax (i.e., FICA) liability.
- Sec. 179D Energy Efficiency Deductions Extended for Commercial Buildings through 2016, allows deductions of up to $1.80 per square foot. Designers of government-owned buildings remain eligible for these deductions as well. Slightly harder qualification standards for 2016 (i.e., ASHRAE 90.1-2007).
- Sec. 45L Energy Efficiency Credits Extended for Multifamily & Residential Developers through 2016. Low-rise apartment developers and homebuilders are eligible for a $2,000 tax credit for each new or rehabbed energy efficient dwelling unit.
Join NSA’s next ConnectEd webinar: The Final Tangible Property Repair Regulations and Fixed Asset Review: Opportunities for 2016 and Beyond on Thursday, May 12th at 2:00pm EDT.
The webinar will cover compliance requirements as well as potential tax planning strategies on both a retroactive and prospective basis. It will also include in-depth examples and real-life case studies. Participants will be better able to identify tax saving opportunities and be in compliance with these new regulations.
Learning Objectives
Upon completion of this course, you will be able to:
- Discuss the changes and new rules presented by the final repair regulations and proposed disposition regulations
- Identify new opportunities to immediately deduct abandoned building components, avoid recapture tax, and expense demolition costs
- Apply Unit of Property rules
- Determine when to capitalize and depreciate expenditures and when to treat them as immediately deductible repairs and maintenance expenses
- Effectively use accounting method changes and elections under the repair regulations to maintain compliance and reduce tax obligations
IRS CE: 2 Hours/Federal Tax Law Update NASBA CE: 2 Hours/Taxes
Presented by Alexander Bagne, JD
Alex is the Director of KBKG's Repair Regulation practice. With more than 10 years of Big Four firm experience, Alex specializes in federal tax consulting strategies that have saved his clients millions of dollars.
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For a complete listing of all NSA webinars, go to www.nsawebinars.nsacct.org.
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